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entitled 'Defense Acquisitions: Missile Defense Program Instability
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2010:
Defense Acquisitions:
Missile Defense Program Instability Affects Reliability of Earned
Value Management Data:
GAO-10-676:
GAO Highlights:
Highlights of GAO-10-676, a report to congressional committees.
Why GAO Did This Study:
By law, GAO is directed to assess the annual progress the Missile
Defense Agency (MDA) made in developing and fielding the Ballistic
Missile Defense System (BMDS). GAO issued its latest assessment of MDA’
s progress covering fiscal year 2009 in February 2010. This report
supplements that assessment to provide further insight into MDA’s
prime contractor performance for fiscal year 2009. Prime contractors
track earned value management (EVM) by making comparisons that inform
the program as to whether the contractor is completing work at the
cost budgeted and whether the work scheduled is being completed on
time. Our analysis of contractor EVM data included examining contract
performance reports for 14 BMDS contracts, reviewing the latest
integrated baseline reviews, performing extensive analysis of data
anomalies, and conducting interviews with Defense Contract Management
Agency (DCMA) officials—-the independent reviewers of MDA contractor
EVM systems.
What GAO Found:
Unlike GAO’s reports in previous years, GAO was unable to analyze the
EVM data for all MDA contracts. GAO determined that the data for the
Ground-based Midcourse Defense (GMD) and Targets and Countermeasures
programs were not sufficiently reliable to include in our report
because of instability in these programs’ baselines. When the baseline
on which the work is performed and measured against is no longer
representative of the program of record, program managers and other
decision makers lose the ability to develop constructive corrective
action plans to get the program on track. Specifically, without
reliable EVM data, GAO was unable to identify significant performance
drivers or forecast future cost and schedule performance. Because the
two contracts associated with these programs represent half of the
budgeted cost at completion for the 14 contracts GAO reviewed, GAO
also determined it was not appropriate in this report to aggregate
total projected underruns or overruns of the remaining 12 prime
contracts as GAO has in prior reports.
The GMD prime contractor performance data was not sufficiently
reliable to use as the basis for analysis because the contractor was
unable to update its baseline to include numerous changes to the
program and modifications to the contract. Despite three large
restructures since 2007 totaling over $2 billion, the GMD program has
not conducted an integrated baseline review since December 2006. DOD
acquisition policy states that an integrated baseline review is to be
conducted within 6 months after contract award, exercise of contract
options, or a major modification to an existing contract. The
Director, MDA has taken extra steps to gain insight into the
contractor’s performance. Further, he intends to report EVM
information to Congress annually.
Similarly, the EVM data for the Targets and Countermeasures contractor
is also not sufficiently reliable to use in our analysis. DCMA
identified several issues with the stability of the Targets and
Countermeasures program baseline including a large amount of schedule
and quantity changes to planned flight tests and over 20 contract
changes to the scope of work or corrective actions to quality issues
for one of the delivery orders over the course of a year. Because the
contractor has not been able to update the established budget in the
baseline, the cost performance reports do not reflect an appropriate
baseline against which to measure cost and schedule progress. Nine of
the remaining twelve contracts experienced cost overruns for fiscal
year 2009 mostly because of issues with maturing technologies,
immature designs, or other technical issues. For example, the Airborne
Laser contractor experienced a failure in some of the system’s optics
which required it to develop and procure new high power optics,
delaying the test schedule and increasing program cost.
What GAO Recommends:
GAO recommends that MDA resolve prime contractor EVM data reliability
issues by the beginning of fiscal year 2011. If, by this time, MDA has
not resolved these issues, the Secretary of Defense should provide a
report to Congress on the steps MDA is taking to resolve them. DOD
concurred with our recommendation.
View [hyperlink, http://www.gao.gov/products/GAO-10-676] or key
components. For more information, contact Cristina Chaplain at (202)
512-4841 or chaplainc@gao.gov.
[End of section]
Contents:
Letter:
Background:
EVM Data for the GMD and Targets and Countermeasures Programs Are Not
Sufficiently Reliable:
BMDS Prime Contractors Aggregate Analysis Not Appropriate Due to Data
Reliability Issues:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Comments from the Department of Defense:
Appendix II: BMDS Prime Contractor Fiscal Year 2009 Cost and Schedule
Performance:
Aegis BMD Contractors Experienced Mixed Performance during the Fiscal
Year:
ABL Cost and Schedule Performance Declined during Fiscal Year 2009:
C2BMC Overrunning Cumulative Cost and Schedule:
Sensors Contractor Experienced Mixed Performance during the Fiscal
Year:
STSS Maintained Schedule Performance, but Cost Performance Continued
to Decline during the Fiscal Year:
THAAD Development Contract Overran Cost and Schedule While THAAD Fire
Unit Fielding Production Contract Experienced Underruns:
Appendix III: Scope and Methodology:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: MDA's BMDS Elements and Prime Contracts:
Table 2: DCMA Compliance Rating and GAO Reliability Assessment for MDA
Prime Contractor EVM Systems:
Figures:
Figure 1: Depiction of Notional Contractor Cumulative Cost and
Schedule Performance:
Figure 2: Aegis BMD Weapon System Cumulative Cost and Schedule
Performance:
Figure 3: Aegis BMD SM-3 Contract for 27 Block IA Missiles Cumulative
Cost and Schedule Performance:
Figure 4: Aegis BMD SM-3 Contract for 24 Block IA Missiles Cumulative
Cost and Schedule Performance:
Figure 5: Aegis BMD SM-3 Block IA and IB Technical Development and
Engineering Cumulative Cost and Schedule Performance:
Figure 6: ABL Cumulative Cost and Schedule Performance:
Figure 7: C2BMC Cumulative Cost and Schedule Performance:
Figure 8: BMDS Radars Cumulative Cost and Schedule Performance:
Figure 9: AN/TPY-2 Radar #7 Cumulative Cost and Schedule Performance:
Figure 10: Thule Radar Cumulative Cost and Schedule Performance:
Figure 11: STSS Cumulative Cost and Schedule Performance:
Figure 12: THAAD Development Cumulative Cost and Schedule Performance:
Figure 13: THAAD Fire Unit Fielding Production Cumulative Cost and
Schedule Performance:
Abbreviations:
ABL: Airborne Laser:
Aegis BMD: Aegis Ballistic Missile Defense:
AN/TPY-2: Army Navy/Transportable Radar Surveillance - Model 2:
BMDS: Ballistic Missile Defense System:
C2BMC: Command, Control, Battle Management, and Communications:
DCMA: Defense Contract Management Agency:
DOD: Department of Defense:
EVM: Earned Value Management:
GMD: Ground-based Midcourse Defense:
IBR: Integrated Baseline Review:
MDA: Missile Defense Agency:
SM-3: Standard Missile-3:
STSS: Space Tracking and Surveillance System:
THAAD: Terminal High Altitude Area Defense:
U.S.C.: United States Code:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 14, 2010:
In 2002, the President of the United States directed the Department of
Defense (DOD) to begin fielding an initial Ballistic Missile Defense
System (BMDS) capable of defending the U.S. homeland, deployed troops,
friends, and allies against ballistic missiles of all ranges in all
phases of flight. The Missile Defense Agency (MDA), established to
develop and deploy these missile defense capabilities, began
delivering an initial capability by concurrently developing and
fielding assets. MDA is the DOD's largest single acquisition program--
spending from approximately $7 billion to $9.5 billion per year.
To more effectively manage complex investments such as these, in
December 1996 the Under Secretary of Defense for Acquisition and
Technology signed a memorandum announcing DOD's adoption of industry
standards for earned value management (EVM) systems for use on defense
acquisitions.[Footnote 1] EVM is a project management approach that,
if implemented appropriately, provides objective reports of project
status, produces early warning signs of impending schedule delays and
cost overruns, and provides unbiased estimates of anticipated costs at
completion.
This report provides an in-depth analysis of MDA's prime contractor
fiscal year 2009 EVM cost and schedule progress. Congress directed GAO
in its fiscal year 2002, 2007, and 2008 National Defense Authorization
Acts, to assess the cost, schedule, testing, and performance progress
that MDA is making in developing the BMDS.[Footnote 2] We have
delivered assessments of MDA's progress covering fiscal years 2003
through 2009, issuing our latest assessment of fiscal year 2009 in
February 2010.[Footnote 3] As we reported in our February 2010 report,
although our annual assessments usually include analysis of EVM data
for MDA contractors, this year we are reporting on this information
separately.
To assess progress during fiscal year 2009, we examined contract
performance reports for 14 BMDS contracts that were managed by eight
BMDS program elements.[Footnote 4] However, we were only able to
report our analysis of EVM data for 12 of these 14 contracts in
appendix II due to concerns with data reliability. The data for the
Ground-based Midcourse Defense and the Targets and Countermeasures
contracts were not sufficiently reliable for inclusion in our
analysis. The 14 contracts we reviewed EVM data for are:
* Aegis Ballistic Missile Defense (BMD) weapon system software;
* two Aegis BMD SM-3 Block IA contracts for:
- a fourth lot of 27 missiles and:
- another lot of 24 missiles;
* Aegis BMD SM-3 Block IA and IB missile technology development and
engineering;
* Airborne Laser (ABL);[Footnote 5]
* three Sensors' contracts:
- BMDS radars,
- Army Navy/Transportable Radar Surveillance--Model 2 (AN/TPY-2) radar
#7, and:
- Thule upgraded early warning radar;
* Command and Control, Battle Management, and Communications (C2BMC);
* Ground-based Midcourse Defense (GMD);
* Space Tracking and Surveillance System (STSS);
* Targets and Countermeasures; and:
* two Terminal High Altitude Area Defense (THAAD) contracts for:
- development and:
- fire unit fielding production.
Because we were only able to analyze EVM data for 12 of 14 contracts,
this report does not provide a BMDS-level analysis as we have provided
in previous years, again, because of data reliability concerns. To
perform our review of the EVM data for 14 contracts, we included
several checks to ensure data reliability including reviewing the most
current documentation on contractor performance data systems for each
of the contractor sites, reviewing the latest integrated baseline
review (IBR) for each contract, and following up with each program
office to track how identified risks are being addressed. In addition,
we checked the reliability of the performance data by consulting with
earned value experts who provided us with tools to perform extensive
analysis to independently review the data. We followed up on the
results of this analysis tool with the program office and further
reviewed its responses with the Defense Contract Management Agency
(DCMA), which independently reviews all of the MDA contractor EVM
systems. Our scope and methodology is discussed in more detail in
appendix III.
We conducted this performance audit from February 2010 to July 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
MDA's mission is to develop an integrated and layered BMDS to defend
the United States, its deployed forces, allies, and friends. In order
to meet this mission, MDA is developing a highly complex system of
systems--land-, sea-and space-based sensors, interceptors and battle
management. Since its initiation in 2002, MDA has been given a
significant amount of flexibility in executing the development and
fielding of the BMDS. To enable MDA to field and enhance a missile
defense system quickly, the Secretary of Defense in 2002 delayed the
entry of the BMDS program into the DOD's traditional acquisition
process until a mature capability was ready to be handed over to a
military service for production and operation.[Footnote 6] Because MDA
does not follow the traditional acquisition process, it has not yet
triggered certain statutory and regulatory requirements that other
major defense acquisition programs are required to adhere to.[Footnote
7]
For example, other major defense acquisition programs are required to
establish the total scope of work and total cost baselines as part of
their entry into the formal acquisition cycle. Title 10 United States
Code (U.S.C.) section 2435 requires a baseline description for major
defense acquisition programs, however the requirement to establish a
baseline is not triggered until a system enters into system
development and demonstration. DOD has implemented this requirement
with the acquisition program baseline in its acquisition policy.
[Footnote 8] Because the BMDS has not yet formally entered the
acquisition cycle, it has not yet been required to meet the minimum
requirements of section 2435. Therefore, because of the Secretary of
Defense's decision to delay entry of the BMDS system into the
acquisition cycle, MDA is not required to establish the full scope of
work or total cost baselines.[Footnote 9] Since we began annual
reporting on missile defense in 2004, we have been unable to assess
overall progress on cost. As a result, one of the only tools available
for us to use in assessing BMDS costs is the costs reported on
individual contracts.
MDA employs prime contractors to accomplish different tasks that are
needed to develop and field the BMDS. Prime contractors receive the
bulk of funds MDA requests each year and work to provide the hardware
and software for elements of the BMDS.
Table 1 provides a brief description of eight BMDS elements and the
prime contracts associated with these elements currently under
development by MDA.
Table 1: MDA's BMDS Elements and Prime Contracts:
BMDS element: Aegis BMD;
Element description: Aegis BMD is a ship-based missile defense system
designed to destroy short-to intermediate-range ballistic missiles
during the midcourse phase of its flight;
Prime contracts associated with element: Aegis Weapon System contract
for software systems;
Contractor: Lockheed Martin Mission Systems and Sensors.
Prime contracts associated with element: Two Aegis BMD contracts for
the production of SM-3 Block IA missiles for a fourth lot of 27
missiles and another lot of 24 missiles;
Prime contracts associated with element: Aegis BMD SM-3 Block IA and
IB missile technology development and engineering contract for
development efforts on the Aegis BMD SM-3 Block IB missile, the
production of one SM-3 Block IB flight test missile, and efforts to
support SM-3 Block IA sustainment engineering and flight test support;
Contractor: Raytheon.
BMDS element: ABL;
Element description: ABL is an aircraft-based missile defense system
designed to destroy all classes of ballistic missiles during the boost
phase of their flight. ABL employs a high-energy chemical laser to
rupture a missile's motor casing, causing the missile to lose thrust
or flight control;
Prime contracts associated with element: ABL contract to build and
test the airborne laser weapon system;
Contractor: Boeing.
BMDS element: C2BMC;
Element description: C2BMC is the integrating element of the BMDS. Its
role is to provide deliberate planning, situational awareness, sensor
management, and battle management for the integrated BMDS. C2BMC
delivers hardware and software capabilities in spiral development
drops--the current operational delivery is Spiral 6.2 and the program
is currently developing Spiral 6.4 planned for delivery in the first
quarter of fiscal year 2011;
Prime contracts associated with element: C2BMC contract to develop,
test, and field an integrating system for the BMDS;
Contractor: Lockheed Martin Information Systems & Global Services.
BMDS element: GMD;
Element description: GMD is a ground-based missile defense system
designed to destroy intercontinental ballistic missiles during the
midcourse phase of their flight. Its mission is to protect the U.S.
homeland against ballistic missile attacks from North Korea and the
Middle East. MDA is planning on emplacing 30 operational interceptors
at Fort Greely, Alaska, and Vandenberg Air Force Base, California, by
the end of fiscal year 2010;
Prime contracts associated with element: GMD contract to develop and
deploy the ground-based system;
Contractor: Boeing.
BMDS element: Sensors;
Element description: MDA is developing various stand-alone radars for
fielding. These include forward-based sensors;
mobile, sea-based sensors, such as the Sea-based X-band Radar;
and upgrades to existing early-warning radars. The BMDS uses these
sensors to identify and continuously track ballistic missiles in all
phases of flight;
Prime contracts associated with element: BMDS radars contract for the
development and production for four AN/TPY-2 radars;
Prime contracts associated with element: Contract for the AN/TPY-2
radar #7, a forward-based radar to be a part of the second THAAD
battery;
Prime contracts associated with element: Contract for the Thule radar,
an upgraded early warning radar;
Contractor: Raytheon.
BMDS element: STSS;
Element description: The STSS is designed to acquire and track threat
ballistic missiles in all stages of flight through the development and
launch of two low-orbit demonstration satellites. In fiscal year 2009,
MDA successfully launched both satellites. Over the next 2 years, the
two satellites will take part in a series of tests to demonstrate
their functionality and interoperability with the BMDS. There is no
operational system planned for STSS;
Prime contracts associated with element: STSS contract for development
of demonstration satellites;
Contractor: Northrop Grumman Aerospace Systems.
BMDS element: Targets and Countermeasures;
Element description: MDA develops and provides a series of targets
used in BMDS flight tests to present authentic threat scenarios. The
targets are designed to encompass the full spectrum of threat missile
ranges and capabilities;
Prime contracts associated with element: Targets and Countermeasures
contract structured by delivery orders to develop targets including
short-range targets, medium-range targets, and intermediate-range
targets including the Flexible Target Family's launch vehicle-2. In
addition, the program develops air-launched targets for various ranges;
Contractor: Lockheed Martin Space Systems.
BMDS element: THAAD;
Element description: THAAD is a ground-based missile defense system
designed to destroy short-and medium-range ballistic missiles during
the late-midcourse and terminal phases of flight. A THAAD Battery is
made up of 3 to 6 launchers, 24 to 48 interceptors, 1 fire control, 1
radar, and peculiar support equipment;
Prime contracts associated with element: THAAD development contract to
develop the hardware and software to conduct ground and flight testing
to validate and verify the design of the THAAD weapon system. In
addition, this contract produced a fire control and launcher for the
first THAAD battery;
Prime contracts associated with element: THAAD fire unit fielding
production contract to produce components of THAAD Battery #1 and #2--
except for the one launcher and fire control provided by the
development contract and the radars that are produced by the Sensors
contractor;
Contractor: Lockheed Martin Space Systems Company.
Source: MDA data.
[End of table]
Each BMDS program office's prime contractor provides monthly earned
value reports which provide insight into the dollar gained or lost for
each dollar invested. These Contract Performance Reports compare
monthly progress to the existing cost or schedule performance baseline
to reveal whether the work scheduled is being completed on time and if
the work is being completed at the cost budgeted. For example, if the
contractor was able to complete more work than scheduled and for less
cost than budgeted, the contractor reports a positive schedule and
cost variance, or "underrun". Alternatively, if the contractor was not
able to complete the work in the scheduled time period and spent more
than budgeted, the contractor reports both a negative schedule and
cost variance, or "overrun". The results can also be mixed by, for
example, completing the work ahead of schedule (a positive schedule
variance) but spending more than budgeted to do so (a negative cost
variance).
We also used contract performance report data to base projections of
likely overrun or underrun of each prime contractor's budgeted cost at
completion. Our projections of overruns or underruns to the budgeted
cost at completion are based on the assumption that the contractor
will continue to perform in the future as it has in the past. In
addition, since the budgeted cost at completion provides the basis for
our projected overruns, we also provide it for each contract we
assessed in appendix II.[Footnote 10]
In addition, as part of the yearly system compliance verification
process, DCMA conducts a periodic surveillance of contractor EVM
systems to determine initial and continuing compliance of those
management systems with government accepted standards.[Footnote 11]
Surveillance (routine evaluation and assessment) of the EVM systems is
mandatory for all contracts that require EVM systems compliance.
[Footnote 12] Surveillance ensures that the contractor is meeting
contractual terms and conditions and is in compliance with applicable
policies and regulations. DCMA has primary responsibility for
surveillance of the prime contractor and sub-tier suppliers with EVM
requirements. According to a DCMA Earned Value Management Center
official responsible for leading system surveillance, at the
completion of the assessment, the DCMA Earned Value Management Center
submits to the contracting officer a status of the contractor's EVM
system compliance, including all supporting data to that effect.
If deficiencies are found during the course of the surveillance
process, it is the surveillance team's responsibility, working through
DCMA's Earned Value Management Center, to issue a written corrective
action request. The purpose of a corrective action request is to
formally notify the contractor that a documented course of action in
the form of a corrective action plan is needed to bring the EVM system
in compliance with government accepted EVM system guidelines.
Corrective action requests range in severity from Level I to Level IV
where, according to a DCMA Earned Value Management Center official
responsible for leading system surveillance, Level I is for non-
compliance with the Defense Federal Regulation Acquisition Supplement
clauses in the contract that can be corrected immediately and for
which no special management attention is required, and Level IV
identifies issues where cost, schedule, technical performance,
resources, or management process issues have unfavorably affected the
supplier's EVM so that it is incapable of reporting meaningful EVM
across multiple programs or multiple sites; and these issues have not
been corrected. Level III and IV corrective action requests may
trigger formal reviews such as post award review for cause, compliance
reviews, or other system validation reviews and may result in
suspension or revocation of EVM systems certification.
EVM Data for the GMD and Targets and Countermeasures Programs Are Not
Sufficiently Reliable:
For GMD and Targets and Countermeasures, we determined that the EVM
data were not sufficiently reliable to analyze these contracts' cost
and schedule performance because of instability in these programs.
Without reliable EVM data, we are unable to identify significant
performance drivers or forecast future cost and schedule performance.
Further, when the baseline on which the work is performed and measured
against is no longer representative of the program of record, program
managers and other decision makers lose the ability to develop
constructive corrective action plans to get the program on track.
These reliability issues affect MDA's oversight of contractor progress
and both MDA and GAO's ability to report this progress to external
parties and Congress. MDA officials were aware that significant
changes were not reflected in the baselines for these two elements and
have been conducting more extensive oversight to compensate, but did
not alert us to this issue during the course of our audit. The
Director, MDA has acknowledged the importance of EVM and to address
some of these issues he has enacted quarterly reviews of each of the
program's baselines. Further, he intends to report EVM information to
Congress annually.
According to DCMA officials, there were several issues associated with
the Boeing EVM system for GMD. One of the main issues was the
contractor's inability to maintain a consistent performance
measurement baseline. With numerous changes to the program and
modifications to the contract, the contractor experienced difficulty
incorporating these changes into the baseline in order to measure
performance against this new work. For example, although the GMD
program experienced a $1.3 billion dollar restructure in 2007, another
major restructure beginning in fiscal year 2008 for over $500 million
that was completed in fiscal year 2009,[Footnote 13] and a third in
fiscal year 2010 for over $380 million, the GMD program has not
conducted an IBR since December 2006.[Footnote 14] DOD's acquisition
policy states that an IBR is to be conducted within 6 months after
contract award, exercise of contract options, or major modifications
to a contract.[Footnote 15] DCMA officials told us that the GMD
program had an IBR underway following the restructure that began in
fiscal year 2008 and completed in fiscal year 2009, but in May 2009
the program was again redirected and the baseline review was canceled.
[Footnote 16]
The Director, MDA explained that some of the GMD program's baseline
instability from frequent restructures was related to the changing GMD
role in European defense. The February 2007 budget request for fiscal
year 2008 included an approach to European defense focused on GBIs
from the GMD element and a large fixed radar as well as transportable
X-Band radars. In September 2009, the administration altered its
approach to European defense and instead constructed a defense system
to consist primarily of Aegis BMD sea-based and land-based systems and
interceptors, as well as various sensors to be deployed over time as
the various capabilities are matured. The Director told us that these
European capability requirements changes drastically affected the GMD
program as a significant amount of work had to be restructured.
During these three to four years of GMD baseline instability, the
Director, MDA told us that MDA took steps to gain additional insight
into the contractor's progress. The program held added reviews in the
absence of IBRs to understand planned near-term effort and how well
they were executing against those plans. In addition, the Director
told us that the program held monthly focus sessions during which the
joint government and contractor teams briefed the status of progress
and risks. The Director acknowledged that these insights are necessary
to understand the meaning of the near-term EVM data. However, without
the benefit of a documented IBR after multiple larger restructures to
the program or being made aware of MDA's added reviews, we do not have
sufficient confidence in the GMD program performance measurement
baseline to reliably analyze the existing EVM data.
Boeing and MDA are taking steps to address problems with the
reliability of the contractor's EVM data. The contractor had planned
to deliver a performance measurement baseline by May 2010 and the GMD
program is planning to conduct a series of IBRs on the remaining prime
and major subcontractor effort beginning in July 2010. In addition,
the contractor is taking initiatives to put a performance measurement
baseline in place as quickly as possible and is providing additional
training for its management and control account managers in charge of
EVM. The Director, MDA told us that MDA was changing how its future
contracts for the GMD program are being structured to be more
receptive to modifications. This new contract structure will include
dividing the work into delivery orders so that modifications will be
reflected at a delivery order level instead of affecting a larger
contract. These steps may help resolve the EVM issues; however we
cannot determine the full effect of these steps until further
evaluation after their full implementation.
Similarly, we have determined that the EVM data for the Targets and
Countermeasures contractor, Lockheed Martin Space Systems, are not
sufficiently reliable for inclusion in our analysis. Based on
discussions with and reports issued by DCMA, the Targets and
Countermeasures contractor was unable to update its baseline because
of numerous program changes. In September 2007, when the delivery
order for the launch vehicle-2 was approximately 60 percent complete,
Lockheed Martin signaled that its baseline was no longer valid by
requesting a formal reprogramming of the effort to include an overrun
in its baseline for this delivery order. MDA allowed the contractor to
perform a schedule rebaseline and remove schedule variances - but did
not provide any more budget for the recognized overrun in the
performance measurement baseline. As a result, DCMA reported that the
performance indicators for this delivery order, needed to estimate a
contract cost at completion, were unrealistic. According to the
Director, MDA did not believe the contractor had justified that there
was a scope change warranting additional budget in the performance
measurement baseline. He said he believed doing so would mask problems
the contractor was experiencing planning and executing the contract
which he identified as the issue as opposed to changes in the
contract's scope. According to the Director, one example of the issues
the contractor was experiencing on this delivery order included a
failure rate of 64 percent on production qualification components. MDA
has since completed the work on this delivery order and begun managing
follow-on target production on a newly established delivery order.
In addition, during fiscal year 2009 DCMA identified several issues
with the stability of the Targets and Countermeasures program
baseline. For example, program changes since fiscal year 2008 on one
delivery order included over 20 contract changes to the scope of work
or corrective actions to quality issues. In addition, the schedule and
quantity of planned flight tests changed significantly. During the
fiscal year, DCMA submitted a corrective action request for
noncompliance with incorporating authorized changes in a timely manner
although the contractor was able to close this issue before the end of
the reporting period. Because of the instability in the baseline and
the contractor's inability to update the baseline with these frequent
changes, we determined the cost performance reports for 2009 do not
reflect an appropriate baseline against which to measure cost and
schedule progress.
According to the Director, MDA, the agency has undertaken a major
effort to stabilize the Targets and Countermeasures program. MDA has
established a new target acquisition strategy to address recurring
target performance issues and increases in target costs. In this new
strategy, the agency will buy generic targets in larger lots that are
not tied to a particular test instead of smaller lots. This effort
should also help increase MDA's flexibility to respond to changing
program requirements. In addition, the Director, MDA told us that the
Director of Engineering at MDA will define target requirements instead
of the program manager which should also help create more stability.
Despite Non-Compliance Ratings for MDA Prime Contractor EVM Systems,
Most Were Sufficiently Reliable for GAO Review:
During the course of our review, we found that DCMA assessed 7 of the
14 contractors' EVM systems as noncompliant in fiscal year 2009. DCMA
also rated 3 of the 14 contractors systems as unassessed. We reviewed
the basis for the noncompliance and unassessed ratings and determined
that only the GMD and Targets and Countermeasures contractor EVM
issues affected the reliability of the data for our purposes. See
table 2 for the DCMA compliance ratings for the 14 MDA prime
contracts' EVM systems and GAO's reliability assessment.
Table 2: DCMA Compliance Rating and GAO Reliability Assessment for MDA
Prime Contractor EVM Systems:
Contracts: Aegis BMD Weapon System;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Check];
Compliant: [Empty];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: Aegis BMD SM-3 Block IA missiles for fourth lot of 27
missiles;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Check];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: Aegis BMD SM-3 Block IA missiles for another lot of 24
missiles;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Check];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Aegis BMD SM-3 Block IA and IB missile technology development and
engineering;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Check];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: ABL;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Check];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: C2BMC;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: GMD;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Check].
Contracts: Sensors' BMDS Radars;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: Sensors' AN/TPY-2 radar #7;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: Sensors' Thule radar;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: STSS contract;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: Targets and Countermeasures;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty];
Compliant: [Empty];
Noncompliant: [Check];
GAO determination: Not sufficiently reliable: [Check].
Contracts: THAAD development;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Check];
Compliant: [Empty];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Contracts: THAAD fire unit fielding production;
Contractor site EVM system compliance rating for 2009:
Not assessed: [Check];
Compliant: [Empty];
Noncompliant: [Empty];
GAO determination: Not sufficiently reliable: [Empty].
Source: DCMA (data); GAO (presentation).
Note: A rating of noncompliant indicates that at least one corrective
action request was open at the end of the rating assessment period.
The noted noncompliance can vary significantly from a small isolated
case that does not affect management data reported to being systemic
across the company affecting all management data reported.
[End of table]
Five EVM systems besides the GMD and Targets and Countermeasures
contractor EVM systems were rated as noncompliant by DCMA during the
fiscal year but did not lead to GAO to conclude that the EVM data were
not sufficiently reliable. In order to judge the reliability of the
data, we reviewed the significance of any open corrective action
request(s) that triggered a noncompliance rating and its impact on the
contractor's ability to judge cost and schedule performance against a
baseline. During the course of our audit, we interviewed DCMA
representatives at each of the contractor sites to understand the
basis for the noncompliance determination and to gain information to
help us assess the reliability of the data.
For example, the EVM system of the STSS contractor Northrop Grumman
was deemed noncompliant because of two low-level corrective action
requests related to issues with other contracts that did not
materially affect the performance baseline for the STSS contract we
assessed. Also, the C2BMC's contractor Lockheed Martin Information
Systems & Global Services received a rating of noncompliant during
2009 because of a corrective action request that stated that major
subcontractor efforts were not specifically identified, assigned, or
tracked in the organizational breakdown structure. However, after the
noncompliant rating was given, DCMA reversed its decision and decided
to close the corrective action without requiring the contractor to
change its methods.
In addition, although DCMA was unable to assess two EVM systems during
2009 for Lockheed Martin Mission Systems and Sensors under the Aegis
BMD weapon system contract, and Lockheed Martin Space Systems Company
under the two THAAD contracts, we determined that the reasons for the
unassessed rating did not lead to issues with data reliability.
According to the DCMA EVM specialist responsible for monitoring the
Aegis BMD weapon system, the Aegis BMD weapon system contractor was
unassessed because some of the accounting guidelines could not be
assessed in time for the compliance rating. In addition, the THAAD
contractor was not assessed because, according to DCMA, although the
contractor had addressed the open corrective action requests, DCMA did
not have the resources to review and document the effectiveness of
those actions in order to close these items before the end of the
rating assessment period. However, subsequent to the closing of the
rating assessment period, the contractor's actions were deemed
sufficient by DCMA to fix the unresolved issues and the corrective
action requests were closed.
BMDS Prime Contractors Aggregate Analysis Not Appropriate Due to Data
Reliability Issues:
We are unable in this year's report to aggregate total projected
underruns or overruns in our analysis of the remaining 12 prime
contracts because we had to exclude the GMD and Targets and
Countermeasures programs due to data reliability issues. The GMD and
Targets and Countermeasures prime contracts' budgeted costs at
completion total nearly $16 billion dollars or half of the total 14
contracts' budgeted cost at completion. By removing such a large
portion of data from our analysis, we determined that it is
inappropriate to perform any aggregate analysis. More detail is
provided for each of the contractors responsible for the remaining
twelve BMDS contracts' cost and schedule performance in appendix II.
Nine of the remaining 12 contracts experienced cost overruns for
fiscal year 2009. Most of the overruns were because of issues with
maturing technologies, immature designs, or other technical issues.
For example, the ABL contractor experienced a failure in some of the
system's optics which required it to develop and procure new high
power optics, delaying the test schedule and increasing program cost.
In addition, the THAAD development contractor expended more funds than
expected for redesigns on the missile's divert and attitude control
system assembly, correcting issues with its boost motor, and making
changes on the design of its optical block--a safety system to prevent
inadvertent launches. Also, the contractor experienced cost overruns
on extended testing and redesigns for its prime power unit in the
radar portion of the contract.
Contractors were able to perform within their fiscal year 2009
budgeted costs for three contracts--the Aegis BMD SM-3 contract for a
fourth lot of 27 SM-3 Block IA missiles and contract for another lot
of 24 SM-3 Block IA missiles, and the BMDS radars contract. The Aegis
BMD SM-3 contractor attributed underruns in both of these lots of
Block IA missiles to production efficiencies since the contractor has
been building Aegis BMD SM-3 Block I and IA missiles for nearly 6
years. The BMDS radars contractor improved cost performance during the
fiscal year through efficiencies in the software development and
systems engineering.
Conclusions:
Because MDA has not established cost baselines, prime contractor EVM
data provides one of the only tools to understand MDA's cost and
schedule progress, particularly for purposes of external oversight. At
present that tool cannot be used effectively for two major contractors
because their data are not sufficiently reliable. While MDA is taking
action to stabilize its programs and thereby improve the reliability
of its EVM data, any additional delays into fiscal year 2011 could
affect future fiscal years' oversight. Moreover, until the data are
sufficiently reliable, MDA, GAO and Congress lose the valuable
insights into contractor performance that EVM provides, including an
understanding of significant drivers to performance, the ability to
forecast future cost and schedule performance, and the ability to
develop constructive corrective action plans based on these results to
get programs that have encountered problems back on track.
Recommendation for Executive Action:
We recommend the Secretary of Defense direct MDA to resolve prime
contractor data reliability issues by the beginning of fiscal year
2011 and, if MDA has not resolved the data reliability problems,
determine the barriers preventing resolution and provide a report to
Congress on:
* the steps MDA is taking to make its contractor data sufficiently
reliable,
* how the data reliability issues affect MDA's ability to provide
oversight of its contractors, and:
* the effect these issues have on MDA's ability to report contractor
progress to others, including Congress.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report. These
comments are reprinted in appendix I. DOD also provided technical
comments, which were incorporated as appropriate.
DOD concurred with our recommendation to resolve prime contractor EVM
data reliability issues by 2011; however, DOD stated that MDA
considers its fiscal year 2009 prime contractor performance data to be
reliable. It should be noted that, while MDA has undertaken extra
measures to gain insight into and compensate for the program
instability effects on its EVM data, the insights gained by MDA are
not available to external organizations which depend on the EVM data
to analyze and forecast trends. Without the benefit of MDA's extra
measures and added reviews, we maintain that the prime contractor
fiscal year 2009 EVM data are not sufficiently reliable for analysis.
Although we agree that MDA will likely have better insight into the
reliability of its contractor performance data once it completes its
comprehensive Integrated Baseline Review process and verifies data
reliability through joint surveillance of the contractor's EVM system
as stated in the DOD response, we are retaining the recommendation to
ensure that these corrective steps are implemented in time to improve
the reliability of the EVM data by the beginning of the next fiscal
year.
We are sending copies of this report to the Secretary of Defense, the
Director, MDA, and Office of Management and Budget. The report also is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-4841 or chaplainc@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix IV.
Signed by:
Cristina T. Chaplain:
Director:
Acquisition and Sourcing Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Norman D. Dicks:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics
3000 Defense Pentagon:
Washington, DC 20301-3000:
July 1, 2010:
Ms. Christina T. Chaplain:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Chaplain:
This is the Department of Defense (DOD) response to the GAO Draft
Report, GAO-10-676,`Defense Acquisitions: Missile Defense Earned Value
Management Effectiveness Limited by Data Reliability Issues:' dated
May 28, 2010 (GAO Code 120891).
The DOD concurs with the draft report's recommendation. The rationale
for our position is included in the enclosure. A list of technical and
factual errors has been submitted separately for your consideration.
We appreciate the opportunity to comment on the draft report. My point
of contact for this effort is Mr. David Crim, (703) 697-5385,
david.crim@osd.mil.
Sincerely,
Signed by:
David G. Ahern:
Director:
Portfolio Systems Acquisition:
Enclosures: As stated:
[End of letter]
GAO Draft Report—dated May 28, 2010:
GAO Code 120891/GA0-10-676:
"Defense Acquisitions: Missile Defense Earned Value Management
Effectiveness Limited by Data Reliability Issues"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends the Secretary of Defense direct
MDA to resolve prime contractor data reliability issues by the
beginning of fiscal year 2011 and, if MDA has not resolved the data
reliability problems, determine the barriers preventing resolution and
provide a report to Congress on:
* The steps MDA is taking to make its contractor data sufficiently
reliable,
* How the data reliability issues affect MDA's ability to provide
oversight of its contractors, and,
* The effect these issues have on MDA7s ability to report contractor
progress to others, including Congress.
DOD Response: Concur. MDA considers the prime contractor data to be
sufficiently reliable to assess fiscal year 2009 performance. MDA
expects data reliability issues to be resolved by the beginning of
fiscal year 2011 and that accurate contractor progress will be
reported to outside entities, including Congress. MDA will verify data
reliability through joint surveillance of the contractor's Earned
value Management System and a comprehensive Integrated Baseline Review
(IBR) process. All IBRs will be conducted by a joint team consisting
of the program office, the contractor, and Defense Contract Management
Agency (DCMA).
[End of section]
Appendix II: BMDS Prime Contractor Fiscal Year 2009 Cost and Schedule
Performance:
To determine if they are executing the work planned within the funds
and time budgeted, each prime contractor provides monthly reports
detailing cost and schedule performance. The contractor tracks earned
value management (EVM) by making comparisons that inform the program
as to whether the contractor is completing work at the cost budgeted
and whether the work scheduled is being completed on time and then
reports this information on Contract Performance Reports.[Footnote 17]
For example, if the contractor was able to complete more work than
scheduled and for less cost than budgeted, the contractor reports a
positive schedule and cost variance, or "underrun". Alternatively, if
the contractor was not able to complete the work in the scheduled time
period and spent more than budgeted, the contractor reports both a
negative schedule and cost variance, or "overrun". The results can
also be mixed by, for example, completing the work ahead of schedule
(a positive schedule variance) but spending more than budgeted to do
so (a negative cost variance).
We provide two kind of variances in our individual contract
assessments pertaining to overruns or underruns either cumulatively
over the life of the contract or during the fiscal year. Cumulative
variances are the overruns or underruns the contractor has earned
since the contract began. In order to calculate fiscal year variances,
we determined the contractor's cumulative variances at the end of
September 2008 and subtracted them from the cumulative variances at
the end of September 2009. Fiscal year 2009 variances give us an idea
of the contractor's performance trends during the fiscal year. A
contractor may have cumulative overruns but underrun its fiscal year
budgeted cost or schedule by improving its cost performance over the
course of the fiscal year.
In our graphs, positive fiscal year variances (underrunning cost or
schedule) are indicated by increasing performance trend lines and
negative fiscal year variances (overrunning cost or schedule) are
shown by decreasing performance trend lines. In our notional example
in Figure 1, the positive slope of the cost variances line indicates
that the contractor is underrunning fiscal year budgeted cost.
Specifically, the contractor began the fiscal year with a negative
cumulative cost variance of $7.0 million but ended the fiscal year
with a negative cumulative cost variance of $1.0 million. That means
that the contractor underran its fiscal year budgeted costs by $6.0
million and therefore has a positive $6.0 million fiscal year cost
variance. Alternately, the cumulative schedule variance is decreasing
during the fiscal year indicating that the contractor was unable to
accomplish planned fiscal year work and therefore has a negative
fiscal year schedule variance. In this case, the schedule performance
declined during the fiscal year from $5.0 million down to $2.0
million. Therefore, the contractor was unable to accomplish $3.0
million worth of work planned during the fiscal year.
Figure 1: Depiction of Notional Contractor Cumulative Cost and
Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$7 million;
Cumulative schedule variance: $5 million.
Month: October 2008;
Cumulative cost variance: -$6.5 million;
Cumulative schedule variance: $4.4 million.
Month: November 2008;
Cumulative cost variance: -$5.5 million;
Cumulative schedule variance: $4.2 million.
Month: December 2008;
Cumulative cost variance: -$5.8 million;
Cumulative schedule variance: $4 million.
Month: January 2009;
Cumulative cost variance: -$5.3 million;
Cumulative schedule variance: $2.8 million.
Month: February 2009;
Cumulative cost variance: -$3 million;
Cumulative schedule variance: $2.5 million.
Month: March 2009;
Cumulative cost variance: -$3.3 million;
Cumulative schedule variance: $3.5 million.
Month: April 2009;
Cumulative cost variance: -$3 million;
Cumulative schedule variance: $3.8 million.
Month: May 2009;
Cumulative cost variance: -$3.8 million;
Cumulative schedule variance: $3.5 million.
Month: June 2009;
Cumulative cost variance: -$2.5 million;
Cumulative schedule variance: $3.3 million.
Month: July 2009;
Cumulative cost variance: -$1.5 million;
Cumulative schedule variance: $2.5 million.
Month: August 2009;
Cumulative cost variance: -$1.5 million;
Cumulative schedule variance: $2.5 million.
Month: September 2009;
Cumulative cost variance: -$1 million;
Cumulative schedule variance: $2 million.
Source: GAO.
[End of figure]
The individual points on Figure 1 also show the cumulative performance
over the entire contract up to each month. Points in a month that are
above $0 million represent a positive cumulative variance
(underrunning cost or schedule) and points below $0 million represent
a negative cumulative variance (overrunning cost or schedule). In our
notional example, the contractor ended the fiscal year with a negative
cumulative cost variance of $1.0 million. This means that since the
contract's inception, the contractor is overrunning its budgeted cost
by $1.0 million. Alternately, the contractor ended the fiscal year
with a positive cumulative schedule variance of $2.0 million. That
means that over the life of the contract, the contractor has been able
to accomplish $2.0 million more worth of work than originally planned.
Besides reporting cost and schedule variances, we also used contract
performance report data to base projections of likely overrun or
underrun of each prime contractor's budgeted cost at completion. Our
projections of overruns or underruns to the budgeted cost at
completion are based on the assumption that the contractor will
continue to perform in the future as it has in the past. Our
projections are based on the current budgeted costs at completion for
each contract we assessed, which represents the total planned value of
the contract as of September 2009.However, the budgeted costs at
completion, in some cases, have grown significantly over time. For
example, the Airborne Laser (ABL) contractor reported budgeted costs
at completion totaling about $724 million in 1997, but that cost has
since grown to about $3.7 billion.
Our assessment only reveals the overrun or underrun since the latest
adjustment to the budget at completion. It does not capture, as cost
growth, the difference between the original and current budgeted costs
at completion. As a result, comparing the underruns or overruns for
Missile Defense Agency (MDA) programs with cost growth on other major
defense acquisition programs is not appropriate because MDA has not
developed the full scope of work and total cost baselines that other
major defense acquisition programs have.
Aegis BMD Contractors Experienced Mixed Performance during the Fiscal
Year:
The Aegis Ballistic Missile Defense (BMD) program employs two prime
contractors for its two main components--Lockheed Martin Mission
Systems and Sensors for the Aegis BMD Weapon System and Raytheon for
the Aegis BMD Standard Missile-3 (SM-3). During fiscal year 2009, the
Aegis BMD SM-3 Block IA and IB missile technology development and
engineering contract experienced declining cost and schedule
performance, the Aegis BMD SM-3 contract for a fourth lot of 27 Block
IA missiles had increasing cost and schedule performance, and the
Aegis Weapon System and Aegis BMD SM-3 contractor for another lot of
24 SM-3 Block IA missiles experienced mixed performance.
Aegis BMD Weapon System:
Although the Aegis Weapon System contractor overran fiscal year 2009
budgeted costs by $0.2 million, it was able to accomplish $1.7 million
more worth of work than originally anticipated. The fiscal year 2009
cost overrun is attributed to unplanned complexity associated with
developing radar software. During the fiscal year, the decline in cost
performance and subsequent recovery is partially attributed to annual
technical instruction baseline updates. These baseline updates occur
over the course of a sixty day period during which varying performance
data occurs. At the end of this period, there is a jump in performance
as the contractor earns two months worth of performance. Some of the
cost savings from April through September 2009 are the result of a
planned flight test being canceled during the fiscal year and the
contractor not spending intended funds on pre-flight test, flight
test, and post-flight test activities. The favorable schedule variance
was driven by completion of some technical instruction efforts. Figure
2 shows cumulative variances at the beginning of fiscal year 2009
along with a depiction of the contractor's cost and schedule
performance throughout the fiscal year.
Figure 2: Aegis BMD Weapon System Cumulative Cost and Schedule
Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $0;
Cumulative schedule variance: -$8.4 million.
Month: October 2008;
Cumulative cost variance: $0.5 million;
Cumulative schedule variance: -$7.6 million.
Month: November 2008;
Cumulative cost variance: -$14.2 million;
Cumulative schedule variance: -$7.3 million.
Month: December 2008;
Cumulative cost variance: -$16.9 million;
Cumulative schedule variance: -$8.7 million.
Month: January 2009;
Cumulative cost variance: -$16.8 million;
Cumulative schedule variance: -$7.9 million.
Month: February 2009;
Cumulative cost variance: -$20.6 million;
Cumulative schedule variance: -$8.2 million.
Month: March 2009;
Cumulative cost variance: -$16.8 million;
Cumulative schedule variance: -$5.6 million.
Month: April 2009;
Cumulative cost variance: -$14.1 million;
Cumulative schedule variance: -$5.4 million.
Month: May 2009;
Cumulative cost variance: -$14.8 million;
Cumulative schedule variance: -$6.7 million.
Month: June 2009;
Cumulative cost variance: -$15.9 million;
Cumulative schedule variance: -$5.7 million.
Month: July 2009;
Cumulative cost variance: -$14.7 million;
Cumulative schedule variance: -$6.6 million.
Month: August 2009;
Cumulative cost variance: -$8.9 million;
Cumulative schedule variance: -$6.9 million.
Month: September 2009;
Cumulative cost variance: -$0.2 million;
Cumulative schedule variance: -$6.7 million.
90.6 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Considering prior performance on the Aegis Weapon System contract
since it began performance in October 2003, the contractor is $0.2
million over budget and has been unable to accomplish $6.7 million
worth of work. The small negative cost variance was driven primarily
by radar software development issues, including a significant redesign
not included in the original baseline. In addition, the engineering
test and evaluation portion of the radar software is experiencing an
increase in the lines of code that also accounts for some of the
budget overrun. The unfavorable $6.7 million in schedule variances are
attributed to the engineering test and evaluation portion of the radar
software for which builds and capabilities are being delivered later
than originally planned. If the contractor continues to perform as it
did through September 2009, our analysis projects that at completion
in June 2010, the work under the contract could cost about $0.2
million more than the budgeted cost of $1.5 billion.
Aegis BMD SM-3 for 27 Block IA Missiles:
The Aegis BMD SM-3 contractor for a fourth lot of 27 Block IA missiles
underran its budgeted fiscal year 2009 cost and schedule by $0.5
million and $5.8 million respectively. The program attributed its cost
and schedule underruns to efficiencies in producing Aegis BMD SM-3
Block I and IA missiles since the contractor has been building these
missiles for nearly 6 years. Additionally, the program reported that
the contract incentivizes the contractor to deliver missiles ahead of
schedule for maximum incentive fee which further encouraged the
contractor to accomplish $5.8 million more worth of work then
originally planned during the fiscal year. See figure 3 for an
illustration of cumulative cost and schedule variances during the
course of the fiscal year.
Figure 3: Aegis BMD SM-3 Contract for 27 Block IA Missiles Cumulative
Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $3.3 million;
Cumulative schedule variance: -$7 million.
Month: October 2008;
Cumulative cost variance: $3 million;
Cumulative schedule variance: -$4.1 million.
Month: November 2008;
Cumulative cost variance: $6.2 million;
Cumulative schedule variance: -$0.2 million.
Month: December 2008;
Cumulative cost variance: $6.9 million;
Cumulative schedule variance: -$2.5 million.
Month: January 2009;
Cumulative cost variance: $6.3 million;
Cumulative schedule variance: -$6.4 million.
Month: February 2009;
Cumulative cost variance: $8.8 million;
Cumulative schedule variance: -$3.3 million.
Month: March 2009;
Cumulative cost variance: $8.9 million;
Cumulative schedule variance: -$0.6 million.
Month: April 2009;
Cumulative cost variance: $2.3 million;
Cumulative schedule variance: -$1 million.
Month: May 2009;
Cumulative cost variance: $2.7 million;
Cumulative schedule variance: -$0.1 million.
Month: June 2009;
Cumulative cost variance: $2.7 million;
Cumulative schedule variance: -$1.7 million.
Month: July 2009;
Cumulative cost variance: $3.9 million;
Cumulative schedule variance: -$2.2 million.
Month: August 2009;
Cumulative cost variance: $4.4 million;
Cumulative schedule variance: -$4.2 million.
Month: September 2009;
Cumulative cost variance: $3.9 million;
Cumulative schedule variance: -$1.3 million.
95.0 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Considering prior years' performance since the contract began in May
2007, the contractor is performing under budgeted cost with a
favorable cumulative cost variance of $3.9 million but is behind
schedule on $1.3 million worth of work. The cost underruns are
primarily driven by implemented efficiencies, material transfers, and
program management adjustments within the solid divert and attitude
control system; a decrease in rework and more efficiencies realized
with the seeker; and underruns in engineering efforts associated with
the third stage rocket motor. The $1.3 million in schedule overruns
are attributed to late delivery of parts as the result of some
equipment failures. If the contractor continues to perform as it did
through September 2009, our analysis projects that at completion in
December 2011, the work under the contract could cost about $5.2
million less than the budgeted cost of $233.8 million.
Aegis BMD SM-3 for 24 Block IA Missiles:
As of September 2009, the Aegis BMD SM-3 contractor for another lot of
24 Block IA missiles had underrun its fiscal year budget by $4.2
million and was behind in completing $3.7 million worth of work. The
contractor attributes its cost underrun to efficiencies in program
management and systems engineering because of its experience in
building SM-3 Block I and IA missiles. The $3.7 million in schedule
overruns resulted from the contractor planning the baseline to a more
aggressive schedule than the contractual missile delivery schedule
requires. The contractor plans in this way because it is incentivized
to deliver missiles 2 months ahead of schedule. As a result, negative
schedule variances have occurred as the contractor is pushing to
deliver missiles early. Figure 4 shows both cost and schedule trends
during fiscal year 2009.
Figure 4: Aegis BMD SM-3 Contract for 24 Block IA Missiles Cumulative
Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$2.7 million;
Cumulative schedule variance: $1.6 million.
Month: October 2008;
Cumulative cost variance: -$2.5 million;
Cumulative schedule variance: $1.9 million.
Month: November 2008;
Cumulative cost variance: -$2.1 million;
Cumulative schedule variance: $2.3 million.
Month: December 2008;
Cumulative cost variance: -$2.5 million;
Cumulative schedule variance: $2 million.
Month: January 2009;
Cumulative cost variance: -$4.4 million;
Cumulative schedule variance: $1.7 million.
Month: February 2009;
Cumulative cost variance: -$4.9 million;
Cumulative schedule variance: $0.5 million.
Month: March 2009;
Cumulative cost variance: -$1.1 million;
Cumulative schedule variance: $4 million.
Month: April 2009;
Cumulative cost variance: -$0.8 million;
Cumulative schedule variance: $4.8 million.
Month: May 2009;
Cumulative cost variance: $0.4 million;
Cumulative schedule variance: $5.5 million.
Month: June 2009;
Cumulative cost variance: $1.5 million;
Cumulative schedule variance: $4.1 million.
Month: July 2009;
Cumulative cost variance: $2 million;
Cumulative schedule variance: $3.4 million.
Month: August 2009;
Cumulative cost variance: $2 million;
Cumulative schedule variance: $1.4 million.
Month: September 2009;
Cumulative cost variance: $1.4 million;
Cumulative schedule variance: -$2.1 million.
38.7 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Cumulatively, since the contract began in February 2008, the
contractor is underrunning its contract's budgeted cost by $1.4
million but is behind on $2.1 million worth of work. The contractor
attributes the cost underrun to labor efficiencies and reduced
manpower within the seeker design as well as a slower-than-planned
ramp-up of some engineering efforts. The schedule delays are mainly
driven by non-delivery of parts for the first stage rocket motor and
late deliveries of parts associated with the third stage rocket motor.
If the contractor continues to perform as it did through September
2009, our analysis projects that at completion in December 2011, the
work under the contract could cost from $15.3 million less to $1.9
million more than the budgeted cost of $192.6 million.
Aegis BMD SM-3 Block IA and IB Technical Development and Engineering:
For the majority of the fiscal year, the Aegis BMD SM-3 Block IA and
IB Technical Development and Engineering contractor experienced a
negative downward trend in cost and schedule performance. The program
attributes its fiscal year cost overrun of $44.6 million to
engineering development on its Aegis BMD SM-3 Block IB throttleable
divert and attitude control system being more difficult than planned.
The $29.4 million of unaccomplished work during the fiscal year was
due to late receipt of materials that drove delays in some of the
hardware testing. See figure 5 for trends in the contractor's cost and
schedule performance during the fiscal year.
Figure 5: Aegis BMD SM-3 Block IA and IB Technical Development and
Engineering Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$6.7 million;
Cumulative schedule variance: -$10.6 million.
Month: October 2008;
Cumulative cost variance: -$10.3 million;
Cumulative schedule variance: -$15.5 million.
Month: November 2008;
Cumulative cost variance: -$12.2 million;
Cumulative schedule variance: -$15.7 million.
Month: December 2008;
Cumulative cost variance: -$11 million;
Cumulative schedule variance: -$18.4 million.
Month: January 2009;
Cumulative cost variance: -$12 million;
Cumulative schedule variance: -$20.9 million.
Month: February 2009;
Cumulative cost variance: -$14.8 million;
Cumulative schedule variance: -$21.1 million.
Month: March 2009;
Cumulative cost variance: -$20.5 million;
Cumulative schedule variance: -$21.9 million.
Month: April 2009;
Cumulative cost variance: -$26.3 million;
Cumulative schedule variance: -$24.7 million.
Month: May 2009;
Cumulative cost variance: -$31.8 million;
Cumulative schedule variance: -$26.5 million.
Month: June 2009;
Cumulative cost variance: -$38.5 million;
Cumulative schedule variance: -$29.5 million.
Month: July 2009;
Cumulative cost variance: -$43.8 million;
Cumulative schedule variance: -$33.5 million.
Month: August 2009;
Cumulative cost variance: -$53.8 million;
Cumulative schedule variance: -$37.5 million.
Month: September 2009;
Cumulative cost variance: -$51.2 million;
Cumulative schedule variance: -$40 million.
54.5 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Cumulatively, since the contract began in December 2007, the program
also has unfavorable cost and schedule variances of $51.2 million and
$40.0 million, respectively. Drivers of the $51.2 million in cost
overruns are throttleable divert and attitude control system
engineering and hardware major submaterial price increases in support
of design reviews and demonstration unit. In addition, quality issues
added to cost overruns as the contractor experienced unanticipated
design changes to the nozzle resulting from foreign object debris
issues. The $40.0 million worth of work that the contractor was unable
to achieve was driven by several issues, including late receipt of
hardware and late production-level drawings. In addition, delays in
testing for attitude control system thrusters and a quality issue that
led to the contractor receiving nonconforming hardware also
contributed to unaccomplished work. If the contractor continues to
perform as it did through September 2009, our analysis projects that
at completion in December 2010, the work under the contract could cost
from $94.0 million to $194.8 million more than the budgeted cost of
$588.9 million.
ABL Cost and Schedule Performance Declined during Fiscal Year 2009:
The ABL contractor, Boeing, experienced cost growth and schedule
delays throughout the fiscal year. The contractor overran budgeted
fiscal year 2009 cost and schedule by $10.2 million and $14.9 million
respectively. The major drivers of fiscal year negative variances were
technical issues and the addition of some testing that was not
originally anticipated. For example, a fire suppression system failed
to meet performance requirements for the laser flight test which
limited the scope of the testing, added an unscheduled ground test and
flight tests to ensure that the system worked properly, and increased
costs. In addition, the contractor experienced a failure in some of
the system's optics which required it to develop and procure new high-
power optics and ultimately delayed the test schedule and increased
program cost. Lastly, because of issues discovered during beam
control/fire control flights, the program scheduled additional
unplanned beam control flights to accomplish the necessary objectives.
The contractor experienced a continuing cost and schedule performance
decline, as seen in figure 6.
Figure 6: ABL Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$84.8 million;
Cumulative schedule variance: -$23.6 million.
Month: October 2008;
Cumulative cost variance: -$85.3 million;
Cumulative schedule variance: -$22.2 million.
Month: November 2008;
Cumulative cost variance: -$83.6 million;
Cumulative schedule variance: -$20.3 million.
Month: December 2008;
Cumulative cost variance: -$80.9 million;
Cumulative schedule variance: -$21.6 million.
Month: January 2009;
Cumulative cost variance: -$76.6 million;
Cumulative schedule variance: -$18 million.
Month: February 2009;
Cumulative cost variance: -$80.9 million;
Cumulative schedule variance: -$22.4 million.
Month: March 2009;
Cumulative cost variance: -$83.1 million;
Cumulative schedule variance: -$25.4 million.
Month: April 2009;
Cumulative cost variance: -$87.6 million;
Cumulative schedule variance: -$30.8 million.
Month: May 2009;
Cumulative cost variance: -$89.5 million;
Cumulative schedule variance: -$32.4 million.
Month: June 2009;
Cumulative cost variance: -$90.5 million;
Cumulative schedule variance: -$33 million.
Month: July 2009;
Cumulative cost variance: -$86.3 million;
Cumulative schedule variance: -$36.9 million.
Month: August 2009;
Cumulative cost variance: -$86.5 million;
Cumulative schedule variance: -$42.1 million.
Month: September 2009;
Cumulative cost variance: -$95 million;
Cumulative schedule variance: -$38.5 million.
96.9 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
The contractor's cumulative cost variance is over budget by $95.0
million and behind schedule by $38.5 million from when the contract
began in November 1997. The program attributes these variances to
optics issues that have affected delivery and installation and caused
test program delays. If the contractor continues to perform as it did
through September 2009, our analysis projects that at completion in
February 2010, the work under the contract could cost from $98.0
million to $116.8 million more than the budgeted cost of $3.7 billion.
[Footnote 18]
C2BMC Overrunning Cumulative Cost and Schedule:
The Command and Control, Battle Management, and Communications (C2BMC)
contractor, Lockheed Martin Information Systems & Global Services, is
currently overrunning budgeted costs for the agreement since it began
performance in February 2002 by $29.5 million and has a cumulative
schedule variance of $4.2 million.[Footnote 19] According to program
officials, the main drivers of the cumulative variances are associated
with the Part 4 and Part 5 portions of the agreement. The Part 4
effort, which began in January 2006 and finished December 2007, was
for the completion of several spiral capabilities, the upgrade for
spiral suites, and implementation of initial global engagement
capabilities at its operations center. The Part 5 effort, which began
in January 2008 and is still ongoing, covers operations and
sustainment support for fielded C2BMC; deliveries of spiral hardware,
software, and communications; and initiated development of initial
global engagement capabilities. MDA and the contractor anticipate
being able to cover cost overruns on the agreement with the nearly $39
million in management reserve set aside by the contractor.
Part 5 accounts for nearly $10.4 million of the $29.5 million in
negative cumulative cost variances. These budgeted cost overruns are
driven by increased technical complexity of Spiral 6.4 development,
and more support needed than planned to address requests from the
warfighter for software modifications. The $4.2 million of
unaccomplished work on the agreement is driven by efforts in the Part
5 portion of the agreement, including delays in system level tests,
late completion of C2BMC interface control document updates, and
unexpected complexity of algorithm development and network design. See
figure 7 for an illustration of cumulative cost and schedule
performance during fiscal year 2009.
Figure 7: C2BMC Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$24.3 million;
Cumulative schedule variance: -$7.1 million.
Month: October 2008;
Cumulative cost variance: -$25.2 million;
Cumulative schedule variance: -$11.4 million.
Month: November 2008;
Cumulative cost variance: -$26.3 million;
Cumulative schedule variance: -$6.3 million.
Month: December 2008;
Cumulative cost variance: -$26.4 million;
Cumulative schedule variance: -$6 million.
Month: January 2009;
Cumulative cost variance: -$26.3 million;
Cumulative schedule variance: -$6.2 million.
Month: February 2009;
Cumulative cost variance: -$27.8 million;
Cumulative schedule variance: -$7.2 million.
Month: March 2009;
Cumulative cost variance: -$31.7 million;
Cumulative schedule variance: -$8.8 million.
Month: April 2009;
Cumulative cost variance: -$27.9 million;
Cumulative schedule variance: -$8.3 million.
Month: May 2009;
Cumulative cost variance: -$29 million;
Cumulative schedule variance: -$9.7 million.
Month: June 2009;
Cumulative cost variance: -$30.6 million;
Cumulative schedule variance: -$8.4 million.
Month: July 2009;
Cumulative cost variance: -$29 million;
Cumulative schedule variance: -$11.8 million.
Month: August 2009;
Cumulative cost variance: -$29.5 million;
Cumulative schedule variance: -$4.2 million.
Month: September 2009;
Cumulative cost variance: -$95 million;
Cumulative schedule variance: -$38.5 million.
89.3 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
The contractor overran its fiscal year 2009 budgeted cost by $5.2
million but is $2.9 million ahead of schedule. The drivers of the
unfavorable fiscal year cost variance of $5.2 million are complexities
associated with Spiral 6.4 development, additional design excursions,
and additional costs to address system modifications requested by the
warfighter. The contractor achieved a favorable fiscal year schedule
variance largely because of gains in the month of September 2009.
During this month, the contractor performed a replan of its work
content and a future spiral's scope was removed from the Part. This
replan eliminated approximately $10 million in schedule variances for
labor and materials because the work was no longer to be performed. If
the contractor continues to perform as it did through September 2009,
our analysis projects that at completion in December 2011, the work
under the agreement could cost from $26.5 million to $33.1 million
more than the budgeted cost of $1.0 billion.
Sensors Contractor Experienced Mixed Performance during the Fiscal
Year:
This year we are reporting on three contracts under the Sensors
program--the Ballistic Missile Defense System (BMDS) Radars contract
on which we have reported in prior years, the Terminal High Altitude
Area Defense (THAAD) fire unit radar #7 contract, and the Thule radar
contract. During fiscal year 2009, the Sensors' contractor, Raytheon,
experienced declining cost and schedule performance on the Thule radar
and Army Navy/Transportable Radar Surveillance--Model 2 (AN/TPY-2)
radar #7 contracts, but had favorable cost and schedule performance on
the BMDS Radars contract.
BMDS Radars:
Throughout fiscal year 2009, the BMDS Radars contractor exhibited
improved cost and schedule performance. The contractor was able to
perform $5.8 million under budgeted cost and $3.5 million ahead of
schedule for the fiscal year. The drivers of the contractor's improved
cost performance are efficiencies in the software development and
systems engineering. The contractor reports that the improved schedule
performance is due to software schedule improvement as well as
completion of manufacturing and integration testing on one of the
radars. The variances, depicted in figure 8, represent the BMDS Radars
contractor's cumulative cost and schedule performance over fiscal year
2009.
Figure 8: BMDS Radars Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $22 million;
Cumulative schedule variance: -$9.6 million.
Month: October 2008;
Cumulative cost variance: $22.3 million;
Cumulative schedule variance: -$10.4 million.
Month: November 2008;
Cumulative cost variance: $24.1 million;
Cumulative schedule variance: -$10.8 million.
Month: December 2008;
Cumulative cost variance: $23.9 million;
Cumulative schedule variance: -$9.6 million.
Month: January 2009;
Cumulative cost variance: $25.6 million;
Cumulative schedule variance: -$9.7 million.
Month: February 2009;
Cumulative cost variance: $25.3 million;
Cumulative schedule variance: -$10.7 million.
Month: March 2009;
Cumulative cost variance: $23.3 million;
Cumulative schedule variance: -$12.4 million.
Month: April 2009;
Cumulative cost variance: $23.3 million;
Cumulative schedule variance: -$8.6 million.
Month: May 2009;
Cumulative cost variance: $23.9 million;
Cumulative schedule variance: -$8.6 million.
Month: June 2009;
Cumulative cost variance: $24.6 million;
Cumulative schedule variance: -$7.8 million.
Month: July 2009;
Cumulative cost variance: $27.5 million;
Cumulative schedule variance: -$7.8 million.
Month: August 2009;
Cumulative cost variance: $27 million;
Cumulative schedule variance: -$8.1 million.
Month: September 2009;
Cumulative cost variance: $27.8 million;
Cumulative schedule variance: -$6.1 million.
88.7 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Since the contract began in March 2003, the BMDS Radars contractor is
under budget by $27.8 million but is behind on accomplishing $6.1
million worth of work. The favorable cost variance of $27.8 million is
driven by the use of less manpower than planned and the benefit of
lessons learned from previous radar software builds. The unfavorable
$6.1 million of unaccomplished work was driven by the late start on
restructuring the latest software release and rework and subcomponent
delays with one of the radars. If the contractor continues to perform
as it did through September 2009, our analysis projects that at
completion in August 2010, the work under the contract could cost from
$31.3 million to $43.0 million less than the budgeted cost of $1.2
billion.
AN/TPY-2 #7 Radar:
The AN/TPY-2 radar #7 contractor experienced unfavorable fiscal year
2009 cost and schedule variances of $4.3 million and $15.2 million,
respectively. As of September 2009, the AN/TPY-2 radar #7 contract had
overrun its budgeted cost by $1.9 million but was ahead in completing
$9.0 million worth of work. Contributors to the cumulative cost
overruns included supplier quality issues that required an increase in
supplier quality support that was not in the original baseline. In
addition, the program's prime power unit purchase orders were over
budgeted cost because the budgeted cost for four of the prime power
units was prematurely established before the design of the first prime
power unit was finalized. These delays caused some uncertainty in the
final production costs until the design was finalized. As of August
2009, the contractor was working to develop a cost model and establish
a true unit cost price per prime power unit. Trends in cost and
schedule performance during the fiscal year are depicted in figure 9.
Figure 9: AN/TPY-2 Radar #7 Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $2.4 million;
Cumulative schedule variance: $24.2 million.
Month: October 2008;
Cumulative cost variance: $2.4 million;
Cumulative schedule variance: $25.6 million.
Month: November 2008;
Cumulative cost variance: $2 million;
Cumulative schedule variance: $27.5 million.
Month: December 2008;
Cumulative cost variance: $2.2 million;
Cumulative schedule variance: $30.4 million.
Month: January 2009;
Cumulative cost variance: $1.9 million;
Cumulative schedule variance: $29.1 million.
Month: February 2009;
Cumulative cost variance: $2.6 million;
Cumulative schedule variance: $27.9 million.
Month: March 2009;
Cumulative cost variance: $2.3 million;
Cumulative schedule variance: $31.1 million.
Month: April 2009;
Cumulative cost variance: $1.6 million;
Cumulative schedule variance: $29.6 million.
Month: May 2009;
Cumulative cost variance: $0.5 million;
Cumulative schedule variance: $25.6 million.
Month: June 2009;
Cumulative cost variance: $0.4 million;
Cumulative schedule variance: $20.5 million.
Month: July 2009;
Cumulative cost variance: -$0.1 million;
Cumulative schedule variance: $16 million.
Month: August 2009;
Cumulative cost variance: -$1.2 million;
Cumulative schedule variance: $13.4 million.
Month: September 2009;
Cumulative cost variance: -$1.9 million;
Cumulative schedule variance: $9 million.
77.0 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Cumulatively, since the contract began in February 2007, the AN/TPY-2
Radar #7 contractor has completed $9.0 million worth of work ahead of
schedule on this contract by executing work ahead of the contract
baseline plan in some areas, including obtaining materials for
equipment supporting radar operation. If the contractor continues to
perform as it did through September 2009, our analysis projects that
at completion in April 2010, the work under the contract could cost
from $0.3 million less to $36.9 million more than the budgeted cost of
$172.5 million.
Thule Radar:
The Thule radar contractor overran fiscal year 2009 budgeted costs by
$0.4 million and was unable to accomplish $0.8 million worth of work.
The contractor attributes the cost overruns to exceeding planned
engineering efforts in order to proactively work on issues prior to
equipment delivery and ship readiness. The unfavorable schedule
performance is due to the contractor expending some if its positive
schedule variance in 2008 and from being behind schedule on the
implementation of information assurance requirements. Figure 10 shows
cumulative variances at the beginning of fiscal year 2009 along with a
depiction of the contractor's cost and schedule performance throughout
the fiscal year.
Figure 10: Thule Radar Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $2.9 million;
Cumulative schedule variance: $0.6 million.
Month: October 2008;
Cumulative cost variance: $3.3 million;
Cumulative schedule variance: $0.6 million.
Month: November 2008;
Cumulative cost variance: $4.1 million;
Cumulative schedule variance: $0.8 million.
Month: December 2008;
Cumulative cost variance: $4.3 million;
Cumulative schedule variance: $0.7 million.
Month: January 2009;
Cumulative cost variance: $4.3 million;
Cumulative schedule variance: $0.5 million.
Month: February 2009;
Cumulative cost variance: $3.7 million;
Cumulative schedule variance: $0 million.
Month: March 2009;
Cumulative cost variance: $3.6 million;
Cumulative schedule variance: $0 million.
Month: April 2009;
Cumulative cost variance: $3.5 million;
Cumulative schedule variance: $0 million.
Month: May 2009;
Cumulative cost variance: $2.7 million;
Cumulative schedule variance: -$0.1 million.
Month: June 2009;
Cumulative cost variance: $3 million;
Cumulative schedule variance: -$0.1 million.
Month: July 2009;
Cumulative cost variance: $3.2 million;
Cumulative schedule variance: -$0.1 million.
Month: August 2009;
Cumulative cost variance: $2.8 million;
Cumulative schedule variance: -$0.2 million.
Month: September 2009;
Cumulative cost variance: $2.5 million;
Cumulative schedule variance: -$0.2 million.
88.6 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
The Thule radar contractor, since it began performance in April 2006,
is underrunning budgeted costs by $2.5 million and overrunning
schedule by $0.2 million. Underruns in hardware, manufacturing, and
facility design, construction, and installation drove the $2.5 million
in cost underruns. If the contractor continues to perform as it did
through September 2009, our analysis projects that at completion in
September 2010, the work under the contract could cost from $1.4
million to $2.8 million less than the budgeted cost of $101.9 million.
STSS Maintained Schedule Performance, but Cost Performance Continued
to Decline during the Fiscal Year:
During fiscal year 2009, the Space Tracking and Surveillance System
(STSS) contractor, Northrop Grumman, was able to accomplish $0.1
million more worth of work than originally anticipated, but overran
budgeted costs by $72.6 million. The contractor reports that the
favorable schedule variances are due to completed space vehicle 1 and
2 shipment, setups and validations, and launch. In addition, the
contractor overran budgeted fiscal year costs because of additional
support required to support launch operations including addressing
hardware anomalies, payload integration, procedure development, and
launch site activities. Additional support was also required to
support the delays to the launch date beyond the original plan. See
figure 11 for an illustration of the cumulative cost and schedule
variances during fiscal year 2009.
Figure 11: STSS Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$319.3 million;
Cumulative schedule variance: -$17.8 million.
Month: October 2008;
Cumulative cost variance: -$331.3 million;
Cumulative schedule variance: -$18.2 million.
Month: November 2008;
Cumulative cost variance: -$339.6 million;
Cumulative schedule variance: -$18.6 million.
Month: December 2008;
Cumulative cost variance: -$345.4 million;
Cumulative schedule variance: -$18.6 million.
Month: January 2009;
Cumulative cost variance: -$356.3 million;
Cumulative schedule variance: -$18.8 million.
Month: February 2009;
Cumulative cost variance: -$366.2 million;
Cumulative schedule variance: -$18.4 million.
Month: March 2009;
Cumulative cost variance: -$374.8 million;
Cumulative schedule variance: -$18.4 million.
Month: April 2009;
Cumulative cost variance: -$370.5 million;
Cumulative schedule variance: -$18.4 million.
Month: May 2009;
Cumulative cost variance: -$376.9 million;
Cumulative schedule variance: -$18.5 million.
Month: June 2009;
Cumulative cost variance: -$371.2 million;
Cumulative schedule variance: -$18.7 million.
Month: July 2009;
Cumulative cost variance: -$379.4 million;
Cumulative schedule variance: -$18.2 million.
Month: August 2009;
Cumulative cost variance: -$386.7 million;
Cumulative schedule variance: -$17.7 million.
Month: September 2009;
Cumulative cost variance: -$391.8 million;
Cumulative schedule variance: -$17.7 million.
57.4 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
Note: The STSS contract includes line items for work that do not
necessarily apply to the satellites that were launched in the fourth
quarter of fiscal year 2009. Removing these line items from our
analysis, the program's contract would be considered 84.1 percent
complete.
[End of figure]
Despite the small gains in schedule variances during the fiscal year,
the contractor maintains cumulative negative cost and schedule
variances of $391.8 million and $17.7 million respectively from the
contract's inception in August 2002. Drivers of the $391.8 million in
contract cost overruns are for labor resources exceeding planned
levels and unanticipated difficulties related to space vehicle
environment testing, hardware failures and anomalies, and program
schedule extension. In addition, space vehicle-1 testing, rework,
hardware issues, and sensor testing anomaly resolution as well as
space vehicle-2 anomalies and testing have also contributed to the
unfavorable cost variances. System test and operations and program
management experienced cost overruns because of launch date schedule
extensions. Lastly, ground labor resources exceeded planned levels
because of the unanticipated need for a new ground software build and
ground acceptance and verification report activities. The contractor
has been unable to accomplish $17.7 million worth of work on the
contract because of launch schedule delays, delays in verification of
system requirements caused by late space segment deliveries, and tasks
slipping in response to fiscal year 2009 funding reductions. If the
contractor continues to perform as it did through September 2009, our
analysis projects that at completion in September 2010, the work under
the contract could cost from $620.9 million to $1.6 billion more than
the budgeted cost of $1.6 billion.
THAAD Development Contract Overran Cost and Schedule While THAAD Fire
Unit Fielding Production Contract Experienced Underruns:
This year we report on two THAAD contracts--the development contract
and the fire unit fielding production contract. As the contractor for
both of these contracts, Lockheed Martin Space Systems Company was
overrunning budgeted cost and schedule on the THAAD development
contract but remained under cost and ahead of schedule on the THAAD
fire unit fielding production contract.
THAAD Development:
During fiscal year 2009, the THAAD development contractor overran its
budgeted cost by $33.1 million but was ahead on completing $7.4
million worth of work.[Footnote 20] The fiscal year cost overruns are
mainly in the missile, launcher, and radar portions of the contract.
The missile experienced overruns on divert and attitude control system
assembly redesigns, correcting issues with its boost motor, and making
changes on the design of its optical block--a safety system to prevent
inadvertent launches. The contractor spent more than expected during
the fiscal year on the launcher portion of the contract, investing in
labor and overtime to recover schedule. Lastly, the prime power unit
in the radar portion of the contract required extended testing and
redesign, which also contributed to fiscal year costs.
Despite fiscal year cost overruns, the contractor was able to
accomplish $7.4 million more worth of work than originally anticipated
also in the missile and launcher portions of the contract. The
schedule variance improved in the missile portion because of
completion of missile qualification work. The contractor was also able
to complete software activities and resolve hardware design and
qualification issues in the launcher. See figure 12 for trends in the
contractor's cost and schedule performance during the fiscal year.
Figure 12: THAAD Development Cumulative Cost and Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: -$228.7 million;
Cumulative schedule variance: -$16.5 million.
Month: October 2008;
Cumulative cost variance: -$232.3 million;
Cumulative schedule variance: -$17.4 million.
Month: November 2008;
Cumulative cost variance: -$236.9 million;
Cumulative schedule variance: -$20.1 million.
Month: December 2008;
Cumulative cost variance: -$236.7 million;
Cumulative schedule variance: -$19.9 million.
Month: January 2009;
Cumulative cost variance: -$239.8 million;
Cumulative schedule variance: -$18.9 million.
Month: February 2009;
Cumulative cost variance: -$245.3 million;
Cumulative schedule variance: -$18.7 million.
Month: March 2009;
Cumulative cost variance: -$249.3 million;
Cumulative schedule variance: -$18.2 million.
Month: April 2009;
Cumulative cost variance: -$254.3 million;
Cumulative schedule variance: -$17.8 million.
Month: May 2009;
Cumulative cost variance: -$258.1 million;
Cumulative schedule variance: -$15.2 million.
Month: June 2009;
Cumulative cost variance: -$260 million;
Cumulative schedule variance: -$14.8 million.
Month: July 2009;
Cumulative cost variance: -$261.5 million;
Cumulative schedule variance: -$14.1 million.
Month: August 2009;
Cumulative cost variance: -$260.1 million;
Cumulative schedule variance: -$9.7 million.
Month: September 2009;
Cumulative cost variance: -$261.9 million;
Cumulative schedule variance: -$9.1 million.
95.1 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Although the contractor made some schedule gains during the fiscal
year, overall the contractor since it began performance in June 2000
is behind on $9.1 million worth of work. The radar's portion of
unfavorable schedule variance is driven by delays to THAAD flight test
missions during fiscal year 2009. In addition, the fire control's
software qualification testing had to be extended because of the
number of software changes and because the welding on the fire control
power distribution unit's chassis failed weld inspection and was
subsequently unusable which contributed to the unfavorable schedule
variance. The launcher experienced design delays and quality issues
that led to nonconformances in delivered hardware. This hardware
subsequently required investigation and rework, which also added
unexpected work to the schedule. Lastly, the program was unable to
accomplish work in the missile component's flight sequencing assembly
component because qualification tests were delayed due to failures
with the optical block switch.
The unfavorable fiscal year cost variances added to the overall cost
overruns of $261.9 million. The contractor attributes overruns to the
missile, launcher, and radar portions of the contract. The missile's
unfavorable cost variance is driven by unexpected costs in electrical
subsystems, propulsion, and divert and attitude control systems. Also
contributing are issues associated with the optical block, range
safety, communications systems, and boost motors. The launcher has
experienced cost growth because of inefficiencies that occurred during
hardware design, integration difficulties, quality issues leading to
delivered hardware nonconformances, and ongoing software costs being
higher than planned because of rework of software to correct testing
anomalies. These problems resulted in schedule delays and higher labor
costs to correct the problems. In addition, cooling and power issues
with the radar have contributed to overruns with the prime power unit.
Numerous fan motor control system redesigns and retrofits for the
cooling system drove costs by the supplier. Inexperience with building
a prime power unit and a limited understanding of the true complexity
and risks associated with the system led to significant cost growth
and delivery delays. If the contractor continues to perform as it did
through September 2009, our analysis projects that at completion in
January 2011, the work under the contract could cost from $267.2
million to $287.4 million more than the budgeted cost of $4.8 billion.
THAAD Fire Unit Fielding Production:
The THAAD fire unit fielding production contractor overran fiscal year
2009 budgeted cost and schedule by $4.7 million and $10.7 million,
respectively. The fiscal year cost and schedule overruns were caused
primarily by the missile and fire control components. Unfavorable
missile cost and schedule variances were the result of hardware
failures associated with components of the inertial measurement unit,
communications transponder, and the boost motor causing delays and
rework. In addition, the fire control portion of the contract
experienced overruns because of unplanned engineering design changes
and labor associated with fire control hardware and issues identified
during testing. These changes were made to the hardware and deliveries
already completed. See figure 13 for an illustration of cumulative
cost and schedule variances during the course of the fiscal year.
Figure 13: THAAD Fire Unit Fielding Production Cumulative Cost and
Schedule Performance:
[Refer to PDF for image: multiple line graph]
Month: September 2008;
Cumulative cost variance: $10.9 million;
Cumulative schedule variance: $22.1 million.
Month: October 2008;
Cumulative cost variance: $10.6 million;
Cumulative schedule variance: $22.5 million.
Month: November 2008;
Cumulative cost variance: $10.7 million;
Cumulative schedule variance: $21.4 million.
Month: December 2008;
Cumulative cost variance: $10.9 million;
Cumulative schedule variance: $18.8 million.
Month: January 2009;
Cumulative cost variance: $10.9 million;
Cumulative schedule variance: $17.8 million.
Month: February 2009;
Cumulative cost variance: $8.9 million;
Cumulative schedule variance: $17.2 million.
Month: March 2009;
Cumulative cost variance: $4.8 million;
Cumulative schedule variance: $16.2 million.
Month: April 2009;
Cumulative cost variance: $6.2 million;
Cumulative schedule variance: $16.5 million.
Month: May 2009;
Cumulative cost variance: $4.4 million;
Cumulative schedule variance: $16.5 million.
Month: June 2009;
Cumulative cost variance: $3.6 million;
Cumulative schedule variance: $16.2 million.
Month: July 2009;
Cumulative cost variance: $5.2 million;
Cumulative schedule variance: $18.9 million.
Month: August 2009;
Cumulative cost variance: $6.7 million;
Cumulative schedule variance: $11.9 million.
Month: September 2009;
Cumulative cost variance: $6.1 million;
Cumulative schedule variance: $11.3 million.
67.2 percent of contract complete.
Sources: Contractor (data); GAO (presentation).
[End of figure]
Despite fiscal year overruns, the fire unit production contractor
continues to underrun its total contract cost and schedule. The
contractor, since it began performance in December 2006, is currently
$6.1 million under budgeted costs and has completed $11.3 million more
worth of work than originally anticipated. The cost underruns are
primarily due to a slow start-up on fire unit fielding level of effort
activities. Schedule variances are not reported on level of effort
activities, so delaying these activities would save on costs without
affecting reported schedule. However, these false positive cost
variances will erode over time once the work gets accomplished. When
planned level of effort work is not performed, EVM metrics are
distorted because they show cost savings for work that has not yet
been accomplished. However, once the work is finished, large
unfavorable cost variances will be revealed since the program will
need to expend funds to accomplish the work for which it has already
received credit. In addition, the program reports its favorable
schedule variances are due to the transfer of excess interceptor
hardware from the development contract to the fire unit fielding
contract. Although the favorable schedule variance from this transfer
of hardware is nearly $23.0 million, offsets occurred from delayed
interceptor build activity driven by multiple supplier hardware issues
and schedule delays because of issues with the boost motor including
unplanned replacement of motor cases, delayed case fabrication, and
slowed operations caused by a safety incident at a production
facility. If the contractor continues to perform as it did through
September 2009, our analysis projects that at completion in August
2011, the work under the contract could cost from $1.3 million to
$17.9 million less than the budgeted cost of $604.4 million. However,
it should be noted that the projection of the estimated cost at
completion may also be overestimated because it is based on current
cost performance that is inflated because of level of effort
activities and schedule performance which are inflated by transfers of
materials from another contract.
[End of section]
Appendix III: Scope and Methodology:
To examine the progress Missile Defense Agency (MDA) prime contractors
made in fiscal year 2009 in cost and schedule performance, we examined
contractor performance on 14 Ballistic Missile Defense System (BMDS)
element contracts. In assessing each contract, we examined contract
performance reports from September 2008 through October 2009 for each
contract, including the format 1 variance data report, cost and
schedule variance explanations included in the format 5, and format 2
organizational category variance totals where available. We performed
extensive analysis on the format 1 of the contract performance reports
in order to aggregate the data and verify data reliability.
To ensure data reliability, we performed a series of checks based on
consultation with earned value experts and in accordance with GAO
internal reliability standards. We began by tracking which earned
value management (EVM) systems that produced the contract performance
reports were compliant with American National Standards Institute
standards in 2009 by reviewing the certification documentation. We
received this documentation through the Defense Contract Management
Agency (DCMA), which performs independent EVM surveillance of MDA
contractors. We then reviewed the latest integrated baseline review
out-briefs for the BMDS elements' contracts to examine the earned
value-related risks that were identified during the review and
followed up with the program office to see which, if any, risks were
still open action items.
To further review the contract performance report format 1 data, we
performed basic checks on the totals from contract performance report
format 1 to ensure that they matched up with organizational totals
from the contract performance report format 2, where available. This
check enabled us to review whether the earned value data were
consistent across the report. In addition, we obtained a spreadsheet
tool from GAO internal earned value experts to perform a more
extensive check of the data. Using this tool, we ran various analyses
on the data we received to search for anomalies. We then followed up
on these anomalies with the program offices that manage each of the 14
BMDS element contracts. We reviewed the responses with GAO EVM experts
and further corroborated the responses with DCMA officials.
We used contract performance report data in order to generate our
estimated overrun or underrun of the contract cost completion by using
formulas accepted by the EVM community and printed in the GAO Cost
Estimating and Assessment Guide.[Footnote 21] We generated multiple
formulas for the projected contract cost at completion that were based
on how much of the contract had been completed up to September 2009.
The ranges in the estimates at completion are driven by using
different efficiency indices based on the program's completion to
adjust the remaining work according to the program's past cost and
schedule performance. The idea in using the efficiency index is that
how a program has performed in the past will indicate how it will
perform in the future. In close consultation with earned value
experts, we reviewed the data included in the analysis and made
adjustments for anomalous data where appropriate.
We conducted this performance audit from February 2010 to July 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Cristina Chaplain (202) 512-4841 or chaplainc@gao.gov:
Acknowledgments:
In addition to the contact named above, David Best, Assistant
Director; Meredith Kimmett; LaTonya Miller; Karen Richey; Robert
Swierczek; Alyssa Weir, and John A. Krump made key contributions to
this report.
[End of section]
Footnotes:
[1] Earned value management is a program management tool that
integrates the technical, cost, and schedule parameters of a contract.
During the planning phase, an integrated baseline is developed by time-
phasing budget resources for defined work. As work is performed and
measured against the baseline, the corresponding budget value is
"earned." Using this earned value metric, cost and schedule variances
can be determined and analyzed.
[2] National Defense Authorization Act for Fiscal Year 2002, Pub. L.
No. 107-107, § 232(g) (2001); Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375, § 233
(2004); National Defense Authorization Act for Fiscal Year 2006, Pub.
L. No. 109-163, § 232 (2006); John Warner National Defense
Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, § 224
(2006); and National Defense Authorization Act for Fiscal Year 2008,
Pub. L. No. 110-181, § 225 (2008).
[3] We did not assess MDA's progress in fiscal year 2002 as the agency
did not establish goals for that fiscal year. We delivered the
following reports for fiscal years 2003 through 2007: GAO, Missile
Defense: Actions Are Needed to Enhance Testing and Accountability,
[hyperlink, http://www.gao.gov/products/GAO-04-409] (Washington, D.C.:
Apr. 23, 2004); Defense Acquisitions: Status of Ballistic Missile
Defense Program in 2004, [hyperlink,
http://www.gao.gov/products/GAO-05-243] (Washington, D.C.: Mar. 31,
2005); Defense Acquisitions: Missile Defense Agency Fields Initial
Capability but Falls Short of Original Goals, [hyperlink,
http://www.gao.gov/products/GAO-06-327] (Washington, D.C.: Mar. 15,
2006); Defense Acquisitions: Missile Defense Acquisition Strategy
Generates Results but Delivers Less at a Higher Cost, [hyperlink,
http://www.gao.gov/products/GAO-07-387] (Washington, D.C.: Mar. 15,
2007); Defense Acquisitions: Progress Made in Fielding Missile
Defense, but Program Is Short of Meeting Goals, [hyperlink,
http://www.gao.gov/products/GAO-08-448] (Washington, D.C.: Mar. 14,
2008); Defense Acquisitions: Production and Fielding of Missile
Defense Components Continue with Less Testing and Validation Than
Planned, [hyperlink, http://www.gao.gov/products/GAO-09-338]
(Washington, D.C.: Mar. 13, 2009); and Defense Acquisitions: Missile
Defense Transition Provides Opportunity to Strength Acquisition
Approach, [hyperlink, http://www.gao.gov/products/GAO-10-311]
(Washington, D.C.: Feb. 25, 2010).
[4] BMDS elements are separate ongoing units to address a different
facet of missile defense, but that work in unison to make up the
greater BMDS.
[5] Since September 2009, MDA has renamed this program the Airborne
Laser Test Bed.
[6] Secretary of Defense Memorandum "Missile Defense Program
Direction" (Jan. 2, 2002).
[7] The BMDS program meets the definition of a major defense
acquisition program, which is defined in 10 U.S.C. § 2430.
[8] DOD Directive 5000.01 (May, 2003) and DOD Instruction 5000.02
(Dec. 2008).
[9] Though MDA is not yet required to meet the requirements to
establish a baseline under 10 U.S.C. § 2435, Congress has enacted
legislation requiring MDA to establish some baselines. The Fiscal Year
2005 National Defense Authorization Act, Pub. L. No. 108-375, §
234(e), required the Director, MDA, to establish and report annually
to Congress a cost, schedule, and performance baseline for each block
configuration being fielded. MDA has since terminated its block
approach. In addition, the National Defense Authorization Act for
Fiscal Year 2008, Pub. L. No. 110-181, § 223(g) required that no later
than the submittal of the budget for fiscal year 2009, MDA shall
"establish acquisition cost, schedule and performance baselines" for
BMDS elements that have entered the equivalent of system development
and demonstration or are being produced and acquired for operational
fielding.
[10] The budget at completion represents the total planned value of
the contract.
[11] American National Standards Institute/Electronics Industries
Alliance-748 is a collection of 32 earned value management system
guidelines that incorporate business best practices for program
management systems proven to provide strong benefits for program or
enterprise planning and control. The processes include integration of
program scope, schedule, and cost objectives, establishment of a
baseline plan for accomplishment of program objectives, and use of
earned value techniques for performance measurement during the
execution of a program. The system provides a sound basis for problem
identification, corrective actions, and management replanning as
required.
[12] DOD's Earned Value Implementation Guide states that surveillance
of management control systems is required for all contract efforts
that require EVM compliance with American National Standards
Institute/Electronics Industries Alliance -748. According to the
Defense Federal Acquisition Regulation Supplement, contractors with
cost and incentive contracts with values over certain thresholds shall
use an earned value management system that complies with the 32 earned
value management system guidelines established by American National
Standards Institute/Electronics Industries Alliance-748.
[13] MDA notes that the two major program restructures in 2007 and
fiscal year 2008 were accomplished via an alpha contracting process.
During this process, there is joint government and contractor
participation including agreement on scope and requirements
development, integrated schedules, and amount and time phasing of
resources. Although these activities satisfy some IBR objectives,
alpha contracting is not a substitute for conducting an IBR.
[14] The GMD program has conducted integrated baseline reviews on a
subcontract effort at the Fort Greely Power Plant, but has not
conducted a comprehensive integrated baseline review of the contract.
[15] Department of Defense Instruction, 5000.02 (Dec. 2, 2008).
[16] The MDA Director told us that the IBR was canceled because the
proposed budget changes would have reduced the program's budget by
nearly half. Later, the program's funding was restored and a
subsequent restructure was issued in October 2009.
[17] Earned value management is a program management tool that
integrates the technical, cost, and schedule parameters of a contract.
During the planning phase, an integrated baseline is developed by time-
phasing budget resources for defined work. As work is performed and
measured against the baseline, the corresponding budget value is
"earned." Using this earned value metric, cost and schedule variances
can be determined and analyzed.
[18] Since September 2009, the period of performance for the contract
was extended to August 2010.
[19] The C2BMC element operates under an Other Transaction Agreement
with cost reimbursement aspects. These types of agreements are not
always subject to procurement laws and regulations meant to safeguard
the government. MDA chose the Other Transaction Agreement to
facilitate a collaborative relationship between industry, government,
federally funded research and development centers, and university
research centers. For the purposes of this report, we have included
this agreement in our analysis of BMDS contracts.
[20] Earned value data for the THAAD development contract is reported
under two contract line item numbers--1 and 10. We report only the
contractor's cost and schedule performance for contract line item
number 1 because it represents the majority of the total work
performed under the contract. Contract line item number 10 provides
for Patriot Common Launcher initiatives funded by the Army's Lower
Tier Program Office.
[21] GAO, GAO Cost Estimating and Assessment Guide: Best Practices for
Developing and Managing Capital Program Costs, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009).
[End of section]
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